More Back to Work: Lessons from Denmark

Last week, a new OECD report on US policy for dislocated workers prompted my blog post on current US policies, which, to put it bluntly, don’t work very well.   The US has a unique and unenviable position:  our workforce faces some of the highest levels of economic dislocation, yet we provide some of the worst services and support in terms of helping workers respond, retrain, and recover.    The OECD’s research on our weak performance has recently been supplemented by a deep dive into a strong performer:  Denmark.  Back to Work: Denmark assesses how the Danes do worker retraining right.  Their renowned system, known as “flexicurity,” maintains open and flexible labor markets but also invests substantial resources to help workers retrain and reskill.   About 75% of displaced Danish workers are reemployed within one year, and workers can choose from a wide variety of training options.  At the same time, they face relatively strict rules that require active job search and training as opposed to remaining on the dole. (In fact, OECD researchers view Denmark’s system as much tougher than that in the US).   This entire system applies to all members of the workforce—not just those who are displaced due to economic conditions or other outside factors.

I’ve spent much time in Denmark and I know that its unique characteristics (e.g., a relatively homogenous population and robust public sector) can limit the applicability of Danish models to US experience.  Yet, parts of this flexicurity model could be (and should be) embraced in the US.   These include better early warning systems to be aware of potential job loss or firm closings, new employment approaches like job sharing and job rotations that can help reduce full-time job loss, and robust investments in training, apprenticeships, and job-to-job transition assistance.

This kind of effective system isn’t cheap.  The Danes spend about 1.8% of GDP on labor market programs and employment supports; the US spends about 0.1% of GDP on these functions.  Approaching investments levels found in Scandinavia is unlikely, but US investment is still abnormally low.  Currently, the average level of labor market program investment in OECD countries is more than twice that found in the US.  One thing is clear:  we’re getting what we pay for.  Our system doesn’t work and it does little to help workers with safety net or retraining services.   The result is more inequity and more workers at risk and in need.

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